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GARZA v. CHICAGO HEALTH CLUBS
September 15, 1972
FRANK A. GARZA, FOR HIMSELF AND, AS A MEMBER AND REPRESENTATIVE OF THE CLASS DESCRIBED IN THE COMPLAINT, ON BEHALF OF ALL MEMBERS OF THE CLASS DESCRIBED IN THE COMPLAINT, PLAINTIFF,
CHICAGO HEALTH CLUBS, INC., A CORPORATION, ET AL., DEFENDANTS.
The opinion of the court was delivered by: McLAREN, District Judge.
MEMORANDUM OPINION AND ORDER
Defendant Chicago Health Clubs (hereinafter "CHC") moves to
dismiss and strike certain parts of the Second Amended Complaint.
CHC's contentions will be dealt with here in the order in which
they are raised in its motion.
Paragraph 7(d) of Count I of the complaint alleges that the
contract signed by plaintiff Garza violates TIL and Regulation Z
by failing to properly disclose that the entire balance would
become due immediately on default without demand or notice and
without providing for a partial refund of the finance charge in
that event. CHC denies that such disclosure is required.
Plaintiff's position is that the acceleration of the balance on
default is a "prepayment" within Regulation Z § 226.8(b)(6) and
(7). This term is not defined in the Regulation and has not been
judicially interpreted. CHC argues that the word should be read
only to include voluntary prepayment by the debtor before
It is well recognized that, in the absence of specific
technical meaning or legislative definition, words used in
statutes and regulations should be accorded their ordinary
meaning. See, e.g., Richards v. United States, 369 U.S. 1, 9, 82
S.Ct. 585, 7 L.Ed.2d 492 (1962); United States v. L.R. Foy
Construction Co., 300 F.2d 207, 210 (10th Cir. 1962). The
ordinary meaning of "prepayment" favors CHC's interpretation. The
fact that § 226.8(b)(4) deals separately with "charges payable in
the event of late payment" also shows that the drafters of the
Regulation saw a difference between default and prepayment. The
Court concludes that § 226.8(b)(6) relates to prepayment in its
ordinary sense, and that part of paragraph 7(d) which erroneously
relies on that section in alleging a failure to provide for a
partial refund of the finance charge on acceleration is therefore
The first part of paragraph 7(d), which alleges that the
acceleration clause was not properly disclosed, nevertheless
states a claim upon which relief may be granted. The fact that
plaintiff has postulated a faulty theory in support of the claim
does not justify dismissal if there are grounds for relief on
another theory. See, e.g., Nord v. McIlroy, 296 F.2d 12, 14 (9th
Cir. 1961); Huey v. Barloga, 277 F. Supp. 864, 872 (N.D.Ill.
1967). TIL § 128(a)(9), 15 U.S.C. § 1638(a)(9), and Regulation Z
§ 226.8(b)(4) require the proper disclosure of "charges payable
in the event of late payments."
The word "charges" is not defined in the statute or regulations
and has not been interpreted in this context by the courts.
Black's Law Dictionary 294 (4th ed. 1951) treats "charges" as a
synonym for "obligation" and "claim." The courts have defined the
word as meaning a pecuniary burden or expense, Sunderland v. Day,
12 Ill.2d 50, 145 N.E.2d 39, 40 (1957), and "`expenses which have
been incurred, or disbursements made, in connection with a
contract. . . .'" Weiner v. Swales, 217 Md. 123, 141 A.2d 749,
750 (1958). Considering these definitions and the purpose of the
statute and regulation to inform consumers of credit costs and
terms so they can effectively choose between sources of credit
(TIL § 102, 15 U.S.C. § 1601), it seems clear that the
acceleration of the balance of the debt should be considered a
"charge" and that the allegations in the first part of paragraph
7(d) are therefore sufficient.
Paragraph 7(f) of Count I alleges that CHC's contract violates
TIL and Regulation Z by failing adequately to describe and
identify the security interest created by the confession of
judgment clause. CHC moves to dismiss on the grounds that the
clause itself is the
security interest. The clause*fn1 clearly identifies the
property to which it relates as required by TIL § 128(a)(10),
15 U.S.C. § 1638(a)(10). It is placed on the same side of the
contract as the signature and above it, in compliance with
Regulation Z § 226.8(a)(1). The only remaining basis for the
claim in paragraph 7(f) is that the confession of judgment clause
does not adequately disclose a "description" of the security'
interest, as required by TIL § 128(a)(10) and Regulation Z §
226.8(b)(5). The initial question is whether this claim presents
an issue of law or fact. The legislative history of TIL is of
little help in this regard. However, the Congressional debates on
the bills which preceded TIL disclose a general intent that the
Federal Reserve Board regulations be specific enough to allow the
lending industry to understand and meet the act's requirements.
Since § 226.8(b)(5) does not define "description," we must assume
that the Board saw it as presenting no serious ambiguity or
Although "description" could be read as requiring some sort of
heading or label, the clause itself explains the consequences of
confession of judgment on default. It tells the debtor that a
judgment will result in levy and execution on his personal
property. Although the clause is written in somewhat legalistic
terms, the language is not so confusing that a debtor can not
understand it. Recognizing that such a clause, differently
worded, might present a question of fact, this is not the case
here. The Court therefore holds that the security interest in
this case is adequately described and grants CHC's motion to
dismiss paragraph 7(f).
Paragraph 7(h) of Count I alleges that CHC's contract violates
TIL and Regulation Z by failing to describe the security interest
acquired by the confession clause in meaningful sequence by
placing the same adjacent to or near other disclosures concerned
with default. CHC asserts that this states no claim because the
acceleration on default need not be disclosed under the
requirements of the act and regulations; thus the confession
clause need not be in meaningful sequence with it.
CHC's argument fails for two reasons. First, as shown above,
the acceleration clause does fall within the disclosure
requirements. Also, there are other charges disclosed in the
contract concerning default which are covered by the
requirements, to which Regulation Z § 226.6(a) requires that the
confession clause be in meaningful sequence. The motion to
dismiss paragraph 7(h) is therefore denied.
CHC also moves to dismiss the words "and were otherwise guilty
of violating said statute and regulation" from the end of
paragraph 7. This conclusory language of course gives CHC no idea
of what other violations plaintiff may attempt to prove. The
words will therefore be stricken with leave to amend so that
plaintiff may specify such other basis he has, if any, for
claiming violations of TIL and Regulation Z.
CHC's motion asserts several grounds for dismissing Count II,
which is based on alleged violations of the Illinois Retail
Installment Sales Act for failure to meet the requirements of
pendent jurisdiction. In United Mine Workers of America v. Gibbs,
383 U.S. 715, 725, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966), the
Court established the familiar requirement of a "common nucleus
of operative fact." This is the test of a federal court's power
to hear a state claim. This test is clearly satisfied here owing
to the fact ...